Reducing asymmetric information in insurance markets: cars with black boxes

  • We examine the effects of ex post revelation of information about the risk type or the risk-reducing behavior of insureds in automobile insurance markets both for perfect competition and for monopoly. Specifically, we assume that insurers can offer a contract with information revelation ex post, i.e., after an accident has occurred, in addition to the usual second-best contracts. Under moral hazard this always leads to a Pareto-improvement of social welfare. For adverse selection we find that this is also true except when bad risks under self-selecting contracts received an information rent, i.e., under monopoly or under competition with cross-subsidization from low to high risks. Regulation can be used to establish Pareto-improvement also in these cases. Privacy concerns do not alter our positive welfare results.

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Author:Lilia Filipova, Peter WelzelGND
Frontdoor URL
Series (Serial Number):Volkswirtschaftliche Diskussionsreihe (270)
Publisher:Volkswirtschaftliches Institut, Universität Augsburg
Place of publication:Augsburg
Type:Working Paper
Year of first Publication:2005
Publishing Institution:Universität Augsburg
Release Date:2020/02/21
Tag:JEL: D82, G22
Also published in: Telematics and Informatics, Volume 27, Issue 4, November 2010, Pages 394-403 ;
Institutes:Wirtschaftswissenschaftliche Fakultät
Wirtschaftswissenschaftliche Fakultät / Institut für Volkswirtschaftslehre
Wirtschaftswissenschaftliche Fakultät / Institut für Volkswirtschaftslehre / Lehrstuhl für Ökonomie der Informationsgesellschaft
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Journals:Volkswirtschaftliche Diskussionsreihe
Licence (German):Deutsches Urheberrecht